Defence spending has remained steady over the past decade, despite the end of the Cold War and a more fluid and uncertain strategic environment. As shown in graphs 4.1 and 4.2, although Defence outlays have risen gradually since 1994-95, as a percentage of GDP they declined from 1992-93 to 1996-97 before flattening out at about 2%.

The White Paper Defence 2000 - Our Future Defence Force establishes that defending Australia in the 21st century will require a greater funding commitment than in the past. To that end, the Government has provided an increase in defence funding of $5.1b over four years, starting with a $507m increase in 2001-02. The military enhancements announced in the White Paper follow a major review of Australia’s defence requirements. Defence has been provided with a Capability Plan and funding projection for the development of Australia’s armed forces over the next decade. In all, defence spending over the next ten years is forecast to increase by a total of $27.6b, averaging around 3% per annum growth in real terms, bringing total spending over the period to around $160b.

Graph 4.3 reflects the importance of people to Australia’s defence capability. It also shows an increased commitment to investment (capital outlays) in the late 1990s, which mainly comprises the purchase of specialist military equipment (the so-called ‘sharp end’ of defence). In the meantime, 'operating' expenditure has declined as a percentage of defence expenditure.

Over the past decade, defence spending by Australia’s traditional strategic partners, the United States and the United Kingdom, has declined steadily with the end of the Cold War and the subsequent reduction of their military forces. The United States’ defence spending as a percentage of GDP has declined from 5% to 3%, and the United Kingdom’s spending as a percentage of GDP has dropped from 4% to 2.5%. Australia has spent less on defence as a percentage of GDP than either of these countries.

From a regional perspective, Australia has tended to spend more on defence than its neighbours. Key regional players, such as Indonesia, Thailand, Malaysia, Singapore, the Philippines and New Zealand, all spend less than Australia. Table 4.4 compares Australia's defence spending with that by key South-East Asian countries during the 1990s.